Podcast Summary
This podcast episode delves into the business model of Coinbase, a leading cryptocurrency exchange. The hosts, Jay (0xJaypeg) and Delphi Digital analyst Michael Rinko, discuss Coinbase’s diversification efforts beyond being just an exchange, including ventures into e-staking, USDC yields, an offshore derivatives exchange, and potential custodianship for spot Bitcoin ETFs. They also explore the company’s revenue and growth prospects, highlighting the decline in Coinbase’s stock price and its successful diversification away from trading fees.
Key Takeaways
Coinbase’s Diversification Strategy
- Revenue Diversification: Coinbase has successfully diversified its revenue streams away from trading fees, which used to dominate its business. The company now categorizes its revenue into transaction revenue (trading fees) and non-transaction revenue (interest income, subscriptions, etc.). In 2023, transaction revenue accounted for just under 50% of Coinbase’s total revenue, compared to around 96-97% when it first went public.
- USDC Strategy: Coinbase’s first big victory in its diversification strategy came from aggressively promoting USDC (USD Coin), a stablecoin tied to the value of the US dollar. Coinbase minted USDC for users who swapped their dollars for the stablecoin, then invested those dollars in short-term treasuries to earn yield. This strategy allowed Coinbase to generate income during bear markets and reduce its reliance on trading fees.
- Staking Revenue: Coinbase has been focusing on staking revenue from the Ethereum protocol, which has become a significant part of their profit and loss statement. Staking involves users putting up a stake of ether or other coins to validate the network, and Coinbase offers a solution for users who want to stake without the hassle of hardware requirements or setting up their own nodes.
- Offshore Derivatives Exchange: Coinbase’s international expansion efforts, including an offshore derivatives exchange, have the potential for significant economic upside and risk diversification. Offshore derivatives exchanges primarily trade perpetuals (pers), which are a larger market than spot markets, with three times the volume.
- Bitcoin Spot ETFs: The podcast explores the potential growth driver of custody services for Coinbase, particularly in relation to the potential launch of a Bitcoin spot ETF. The importance of a spot Bitcoin ETF is emphasized, with existing Bitcoin funds primarily consisting of spot vehicles.
Sentiment Analysis
- Bullish: The podcast presents a bullish sentiment towards Coinbase’s business model and future prospects. The hosts highlight the company’s successful diversification strategy, its potential to capture a significant market share in the offshore derivatives market, and the potential growth driver of custody services for Bitcoin spot ETFs. They also express optimism about Coinbase’s ventures into e-staking and USDC yields.
- Bearish: The bearish sentiment in the podcast is primarily related to the decline in Coinbase’s stock price and the cyclical nature of its transaction volume. The hosts also discuss the risk of falling yields and the possibility that users may prefer on-chain treasury options that allow them to collect the yield themselves rather than giving it to Coinbase.
- Neutral: The hosts maintain a neutral stance when discussing the potential risks and challenges facing Coinbase. They acknowledge the regulatory risks, the risk of execution, and the potential impact of decentralized exchanges on Coinbase’s market share. However, they also note that Coinbase has historically been able to navigate these challenges successfully.
